Justin Ishbia - Lessons from Acquiring 586 Companies [Invest Like the Best, REPLAY]
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this compelling episode, Justin Ishbia, founder of Shore Capital, breaks down how his firm has executed nearly 600 acquisitions in three years by treating "the system as the star" rather than relying on individual brilliance. He reveals Shore's methodical approach to micro-cap private equity, averaging $12 million deal sizes while deploying $7 billion in capital through systematic processes that span from industry thesis generation (14:06) to board construction featuring seven independent members for each $3 million EBITDA business (24:37). Ishbia shares how early-career energy, first-time CEOs backed by experienced boards, and a centers of excellence operating model create sustainable competitive advantages in an overlooked market segment that has delivered 72% gross IRRs with zero deals below 3x cash-on-cash returns (19:16).
Speakers
Justin Ishbia
Founder of Shore Capital, a private equity firm with $7 billion in capital deployed across nearly 600 acquisitions. As he explains in the episode, Shore invests in micro-cap businesses with average transaction size of just $12 million, specializing in Main Street, not Wall Street businesses.
Patrick O'Shaughnessy (Host)
CEO of Positive Sum and host of Invest Like the Best podcast, part of the Colossus family of podcasts. He brings extensive experience in quantitative research and investment strategy to his conversations with leading investors and business builders.
Key Takeaways
Master the Early Career Energy Advantage
Identify talented individuals early in their careers who want responsibility and create systematic ways to accelerate their development. Over 80% of Shore's CEOs are first-time leaders, and they've created a CXO program to recruit from top business schools and provide a clear pathway to leadership. The key is pairing early career energy with experienced board members who can provide the institutional knowledge that typically takes 5-10 years to develop. (27:30)
Build Boards Like Championship Teams
Construct a 7-person board for every acquisition with specific roles: two people who've run businesses in that exact sector at 3x the size, one functional expert, and 1-2 people from adjacent sectors. Don't pay cash compensation—instead, offer equity options worth $250,000 in base case scenarios. This creates Mount Rushmore-level expertise around small businesses that wouldn't otherwise have access to such high-caliber guidance. (26:17)
Document Everything for Systematic Excellence
Create detailed playbooks for every stage of the investment lifecycle, from idea generation (nine innings of baseball) to closing (four quarters) to operating procedures. Shore has codified hundreds of steps and 23 standard operating procedures implemented in every business. This allows junior professionals to execute sophisticated deals while maintaining quality control. (06:55)
Focus on Volume to Create Competitive Moats
Execute at unprecedented scale in micro-cap deals—Shore has completed 600 acquisitions over three years with an average enterprise value of $12 million. This volume creates network effects: access to talent pools, operational expertise sharing across portfolio companies, and proprietary deal flow that larger funds can't access due to economics. The system becomes self-reinforcing as more transactions create more data and relationships. (08:07)
Invest Where Small Players Win
Target "barbell" industries with a few large players and thousands of mom-and-pops, but limited middle-market competition. Look for sectors where local relationships matter, technical expertise is valued, and founders excel at their craft but want to delegate business operations. These create natural consolidation opportunities where systematic operational improvements can generate 50-70% IRRs. (15:05)
Statistics & Facts
- Shore Capital has completed 59 platform investments and exited 14 companies with average gross cash-on-cash returns of 7x and IRRs of 72%. (19:16) Their median returns are 5.5x gross cash-on-cash with no deal ever returning less than 3x.
- Shore Capital has deployed over $7 billion across approximately 586 transactions in a three-year period, with an average enterprise value of $12 million per transaction. (08:07) According to PitchBook, this represents more acquisitions than any other firm globally.
- 80% of Shore Capital's CEOs are first-time CEOs, representing their philosophy of "early career energy" where smart professionals can learn 90% of an industry in 18 months, though the final 10% takes 5-10 years. (23:21)
